Procurement

Webster's definition: To obtain, especially as a result of some degree
of effort. To bring about or contrive.

The simple and common notion of "procurement" is "buying" or
"purchasing." But careful examination of Webster's definition -- "some
degree of effort", "bring about", "contrive" -- reveals that there is
much more to it. These words imply objectives, planning, investigation,
analysis, ingenuity and a certain amount of production. Our goal here
is to dig into those nuances within the context of the LML -- to better
understand the critical role procurement plays and leverage those
insights to create competitive advantage.

What are we procuring?

When we speak of procurement in the Logistics Management Lifecycle (LML) environment, it is important to
understand what we are procuring. If we are in the traditional
purchasing and buying mindset, we might be procuring transportation
services, warehouse space, consulting services, forwarding and customs
brokerage, etc. But if we are contriving or bringing something about
with some degree of effort, then we are doing much more, such as:

driving waste out of supply chains

accelerating sales velocity

improving the quality and availability of information

collaborating across enterprises and entities

shortening the cash to cash cycle

When procurement is focused on bringing these things about, purchasing
goods and services is done for very different reasons than just "getting
the lowest price." As a simple example, let's look at the common
activity of procuring transportation from Point A to Point B. The
purchasing mindset says -- "I need to get the lowest rate." But when
viewed in the context of 1-5 above, it is not that simple. Buying at
the lowest price might violate the real objectives if the carrier:

has erratic and unpredictable service that drives up the cost of
in-transit inventories

is slow in quoting and responding to special requests

has antiquated information systems that limit visibility

does not have the open technology architecture to share information
via the Internet

does not provide timely proof of delivery, has poor billing processes
or less desirable payment terms

Any of the above can easily generate costs that exceed the amount of
money "saved" by getting a lower price.

How do we procure?

That depends on the scope and dollars involved. For the purposes of the
LML, we are only considering larger, more strategic decisions. These
decisions tend to be more complex and recently conducted a tender
for:

North America to and from the Globe

All divisions

All modes of transportation

12 candidate providers

Analysis in this environment requires strict conformity to the bid
structure by all candidates.

Sell Side Challenge
: The problem for candidate
providers is just the opposite of the Buy Side Challenge. Unlike
enterprises (customers), service providers cannot dictate the form in
which they receive a tender. Unfortunately, each enterprise has its own
bid structure and idiosyncrasies -- different naming conventions,
surcharges, service requirements, lane definitions, etc. -- to which the
service provider must respond in order to compete for the business. The
"sell side challenge" is that the variations from tender to tender turn
each one into a major project and headache for Sales, Pricing and the
P&Ls affected within the scope of the bid. Sales and Pricing must
manually interpret each tender, find the appropriate service/price
response for each line, key the data, submit it to the appropriate P&Ls
for edit/approval, proof it and send it back to the customer --
hopefully in the original format. This takes major senior level
resources that are occupied mainly in getting the response done by the
deadline. Little time is left for proper analysis and optimization.
The net (and negative) results are:

lower sales velocity

higher human resource costs

lower yields

fewer wins

fewer repeat invitations to bid

How do we improve the procurement process?

The answer to this lies in overcoming the buy side and sell side
challenges. Fortunately, some Internet native technology tools are
emerging that tackle these head on. These tools enable enterprises to
automatically generate tenders directly from shipping profiles in their
ERP systems, analyze the responses (even if the format has been
altered), optimize their selections and capture the resultant agreements
in a relational database for use in the Execution and Audit & Pay stages
of the LML.

Service providers derive value from these tools by automatically --
receiving and translating the tenders, populating them directly from the
rate database, collaborating on-line across P&Ls, and generating the
response in the exact format required by the customer.

Some key benefits of employing such tools are the following:

For Enterprises

Increased competition and service/price options because more
candidates can effectively be invited and evaluated

Lower supply chain costs through optimization

Lower costs to conduct the tenders

Better execution later in the LML due through the resultant rate
database

Higher yields due to better analysis and decision making by the
senior people freed up above

More wins through higher quality and more competitive responses

More invites to future tenders because of strict compliance to
tender rules

Final thoughts on procurement

Procurement is by far the most strategic element in the Logistics
Management Lifecycle. These decisions require the involvement of
corporate leadership, not just management. To be effective, major
procurement decisions must align with corporate business objectives for
the long as well as the short term. Enterprises must select providers
who fit their requirements from a business standpoint, as well as a
solution standpoint. This can often mean selecting the candidate that
is not the lowest price respondent to a tender.

For service providers who want to win more business at higher yields, it
is imperative to demonstrate business and solution fit. Timely,
compliant, competitive and well reasoned tender responses help do just
that. They show the prospective customer that you understand their
requirements and have done the work to generate maximum value in your
response -- beyond just the pricing. At a strategic level, enterprises
are more likely to do business with providers that instill trust and
confidence through high business acumen and corporate professionalism.

So no matter what your role in the process, hopefully this article has
shown the critical importance of procurement and provided some insights
on how to leverage tenders to your competitive advantage.